Forex Today: USD rallies as Senate clears tax reform hurdle, T-yield rise & Kiwi drops below 0.70 levels

Omkar Godbole FXStreet Contributor

FX desks in Asia put a bid under the US dollar as the Senate's decision to approve a budget blueprint for the 2018 fiscal year has made way for the GOP to enact a tax-cut package without Democratic support. Tax cuts are widely seen as inflationary, thus the long duration treasury yields strengthened. The yield curve steepened to 80 basis points and the USD index rose to 93.50 levels. The other big news in Asia was the drop in the NZD/USD pair below 0.70 handle. Investors are unclear about the RBNZ's mandate under the new government, thus NZD is being offered across the board.

Main topics in Asia

US Senate adopts budget resolution, sets stage for tax reform

UK PM Theresa May urged EU to create 'new dynamic' in Brexit talks

A report from BBC says, "Theresa May has urged EU leaders to create a "dynamic" in Brexit talks that "enables us to move forward together", at a working dinner in Brussels."

USD/JPY clocks 2-week high of 113.19 as T-yields rise on the US tax reform news

The Dollar-Yen jumped to two-week high as the steepening of the treasury yield curve on US tax reform news boosting the demand for the greenback. Also worth noting that JPY tends to strengthen on Friday on fears of escalation of crisis in the Korean Peninsula over the weekend.

Kiwi bears eye 0.6908, 11th April low

NZD is being offered on uncertainty regarding the RBNZ's mandate under the new government.

Looking ahead

European desks may keep the USD well bid on the tax reform news. EUR and GBP are likely to feel the heat of the political uncertainty (Catalonia crisis and Brexit deadlock). GBP/USD could slide to 100-DMA level of 1.3045 on speculation that EU leaders will express concerns regarding the lack of progress in Breit negotiations.

Political uncertainty is likely to overshadow data releases in Europe - EZ PPI (Sep) and Current Account (Aug). In the North American session, CAD retail sales and US existing home sales are due. Fed's Yellen speech may not move the markets today.

EUR/USD drops 0.30 percent as the yield differential widens

The US-German 10-yr yield spread is rising on US tax reform news. Thus, EUR/USD may remain on the back foot. EZ PPI unlikely move markets, focus on European Council Meeting.

ECB: Lower for longer 2.0 - ING

The Eurozone economy has not changed since the September ECB meeting and even though the results of the German elections have somewhat dampened the eu(ro)phoria of the summer months, survey indicators still point to a continuation of the recovery well into 2018.

GMT	Event	Consensus	Previous
Friday, Oct 20
06:00	EUR Producer Price Index (MoM)	0.1%	0.2%
06:00	EUR Producer Price Index (YoY)	2.9%	2.6%
06:35	JPY Bank of Japan Governor Kuroda Speech
07:00	DKK Retail Sales (YoY)		0.3%
08:00	EUR Current Account s.a	€26.2B	€25.1B
08:00	EUR Current Account n.s.a		€32.5B
08:30	GBP Public Sector Net Borrowing		£5.093B
n/a	EUR European Council meeting
11:30	INR FX Reserves, USD		$398.79B
12:00	BRL Mid-month Inflation	0.35%	0.11%
12:00	EUR Unemployment Rate	6.4%	6.5%
12:30	CAD Retail Sales ex Autos (MoM)	0.3%	0.2%
12:30	CAD Retail Sales (MoM)	0.5%	0.4%
12:30	CAD Consumer Price Index (MoM)	0.3%	0.1%
12:30	CAD Consumer Price Index (YoY)	1.6%	1.4%
12:30	CAD Consumer Price Index - Core (MoM)	0.3%	0.1%
12:30	CAD Bank of Canada Consumer Price Index Core (YoY)		0.9%
12:30	CAD Bank of Canada Consumer Price Index Core (MoM)		0%
13:00	MXN Jobless Rate s.a	3.3%	3.3%
13:00	MXN Jobless Rate	3.6%	3.5%
14:00	USD Existing Home Sales (MoM)	5.30M	5.35M
14:00	USD Existing Home Sales Change (MoM)	-1.0%	-1.7%
17:00	USD Baker Hughes US Oil Rig Count		743
18:00	USD FOMC Member Mester speech
19:30	USD CFTC Gold NC net positions		$200.1K
19:30	GBP CFTC GBP NC net positions		£15.5K

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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